Autumn Company has been in business for several years, during which time it has been profitable. For each of those years, Autumn reported (and paid taxes on) taxable income in the same amount as pretax financial income as follows:
Income Enacted Tax Rates
2012 $320,000 20%
2013 $500,000 25%
2014 $730,000 30%
2015 $450,000 25%
During 2016, Autumn experienced a serious decrease in demand for its products. The company tried to offset this decrease with an expensive marketing campaign, but was unsuccessful. Consequently, at the end of 2016, Autumn determined that its revenues and expenses were $600,000 and $1,930,000 during 2016 for both income tax and financial reporting.
Autumn decided to carry back its 2016 operating loss to the extent possible because it was not confident it could earn taxable income if the future carryforward period. The income tax rate was 30% for 2016, and no change had been enacted for future tax years.
Requirements for 2016:
A. Prepare Autumn's journal entries at the end of 2016.
B. Prepare the lower portion of Autumn's income statement.
In mid-2017, Autumn developed and introduced a new product that proved to be in high demand. On April 1, 2017, Autumn received a refund check from the government based on the tax information it filed at the end of 2016. Autumn reported revenues of $1,810,000 and expenses of $1,550,000 (pretax FA income of $260,000; same for tax) in 2017. The applicable tax rate remained 30%,
Requirements for 2017:
A. Prepare the journal entry to record the receipt of the refund check.
B. Prepare the income tax journal entry at the end of 2017.
C. Prepare the lower portion of Autumn's 2017 income statement.